In late 2013/early 2014, I first poked Bitcoin after I discovered it by chance in a popular newspaper post.
I didn’t understand what this was about, but I knew I was intrigued instantly. I started to read and learn about it and then bought it. Well, until I found out how to negotiate the wasteland of charlatans willing to steal my money, that is. Bitcoin was at the time a fairly risky deal and trusting the wrong person or firm would always lead to a total loss. Luckily, that isn’t the case anymore.
But it wasn’t until 2017 that I started to be serious. I finally sold my current company so I could focus on it full time.
But here is the point: during this whole era, and almost certainly before I even got interested, the debate about whether Bitcoin was a valid and legitimate “store of value” went back and forth between supporters and detractors, sometimes even between their camps. It’s been over 11 years of’ discussion’ to date.
While my own (and well documented) opinion has always been that Bitcoin is certainly an excellent store of value, it’s just based on my understanding of the economic theory, a set of scattered examples and, honestly, a little sprinkle of “good feeling.”
That’s, so far.
Enter the Black Swan
Even as I write these words, Covid-19, also referred to as the’ Coronavirus,’ travels around the world at an unprecedented pace and triggers widespread panic and indiscriminate death.
This is undoubtedly not the first time such a thing has happened, but with that international travel and technology each year, creating increasingly interconnected financial networks, any successive pandemic outbreak eventually causes more harm than the last.
The consequence of the outbreak is still not completely understood in human terms, but economically speaking we already know where we go. And that is not good. It is not good.
The markets had experienced years of growth and were almost certainly heading to a major correction, but as soon as one major corporation had declared that its targets would be missed because of problems in the virus supply chain, it confirmed the end of the days in Halcyon.
The selling began.
So much for the rules
The resulting dumping of commodities and equities were as ruthless as it was relentless. Bitcoin was caught in the rush to take full risk and turn it all back into fiat.
At first, gold responded well, as money was attempting to find a safe haven in the storm–just as tradition dictates–but then something unforeseen happened; gold, too, started to fall. It’s now well below $1500 after hitting a peak just timid at $1700 in early March, bringing it back to its last point of mid-December 2019.
Silver was much worse, falling on rates which have not been seen since 2009, which was the year Bitcoin itself began its existence in a crippling irony. This means that if you put 100 dollars in silver today you would only have 100 dollars (85.96 dollars actual, accounting for US Inflation over that period). But if you put 100 dollars into bitcoin, you’d have 9,000,000 dollars now. No, this isn’t a mistake.
Though, of course, theoretically, this is a measure of investment return rather than a store of value, it is very obvious that we argue here for semanticization. Name what you’re going to be. I would have preferred my Bitcoin money rather than silver.
Oil had already tolerated in the last decade with a negative return between 2010 and 2020 but was down to a double decade as of yesterday. This was in part due to the global collapse in supply, but also to the spat over production rates in Russia and Saudi Arabia, formerly determined to keep the US shale industry from profiting from higher prices.
Within a matter of days globally, stocks wiped out nearly four years of growth. Most indexes reported losses on a scale not seen since 1987 or even 1929. Now, whether directly on the markets or not, everyone is affected, and I was bought home this morning by the unexpected arrival of an email from my pension fund.
I will point out that I had a pension plan with this company for over 20 years in one form or another and this was my first unwelcome contact. It was triggered by the Financial Conduct Authority regulation (a UK body), which explained:
Again, it didn’t shock me, getting an understanding of what’s happening around the world, but it’s always difficult to believe that in such a short time the net worth has plummeted so far.
The bottom line is that there are no safe havens at this moment. Not commodities, stocks, shares, or even precious metals.
Everyone wants to be just one spot, Cold. Strong. Strong. Money. Money.
Cash is a poor safe haven
Of course, it is not without its problems to switch to fiat. Leaving anything in cash-free terms would lose value over time with absolute certainty due to inflation. And the fact that so many people chose to do so shows how much uncertainty exists today. It’s not a good place to be, but it is well known.
This is the “least bad” alternative.
However, now almost every government in the world has embarked on an unparalleled degree of quantitative easing to try to reduce the harm done by the spread of the coronavirus. And when you print more currency, particularly at the level they do at the moment, the laws of the economy mean that their value will fall through inflation.
Of course, everyone knows this, including the politicians themselves, so it’s just about doing what you can to help the system right now. The hope is that we’ll get through and deal with the consequences later.
And the consequences are immense.
So, where does that leave Bitcoin?
After the price of Bitcoin fell from just over $10,000 about four weeks ago to just less than $5,000 at the bottom of a few days ago, there has of course been a question about whether it ever will be a true store of value.
In response I will make three comments:
First, Bitcoin is very young in comparison with other properties. It is just not commonly accepted enough to be properly regarded at this time as a store of value. No one, including myself, was shocked that the sales included with all other properties, but for most people, it is still considered too risky.
This will likely be a different story a few years in the future if Bitcoin had a much higher reach globally. Even gold— an asset that has centuries of a lead— couldn’t maintain its base in such a crisis, but it is tempting to assume that anything else will be far more valuable to the average citizen.
Second,’ Bitcoin doesn’t have a value’ now needs to be decided once and for all. The fact that Bitcoin did not even lower a new 12 months at sell-off price shows that whatever we think of the asset, it has at least a verified perceived value. And interest interpreted by our fiat currencies is adequate to sustain a whole scheme.
An asset that was honestly considered to be of no value should have sunk to zero in a particular way if there was the slightest sign of trouble.
Finally, the blockchain review reveals some interesting stuff. Last twelve months ago, the vast majority of coins changed hands. This implies that most people who sold almost certainly did so and only recently had fairly easily entered the region. It’s a classic knee jerk, a green investor panic reaction.
Coins over 12 months old were barely affected, meaning that those who had a long-term view of the idea of Bitcoin remained as committed as they had before. Such people strongly assume that Bitcoin is a better value store than fiat. This is another step for them on the long path to wider acceptance and value. They would certainly not think of unloading their Bitcoin for anything meaningless as fiat.
What happens next?
We are now financially in fully uncharted territories. There are no precedents and as we move along we make up the rules.
The only promises we have are the government will print as much money as it wants to support its currencies, the inflation rate will be much higher in due course and the recovery takes decades. Possibly never will things be the same.
Interestingly, the ideal theoretical conditions have been established for Bitcoin to rise. To seek to help it, it did not need a $1.5 trillion rescue. No circuit breakers have been triggered to stop their 24-hour trading. It’s the only currency that doesn’t raise production on Earth.
And still, even without its financial allies, the price of Bitcoin has recovered over the last 48 to 72 hours, even though gold has not recovered. The stimulus packages proposed to date have not even impressed the markets themselves.
Meanwhile, Bitcoin remains unchanged quietly and without fanfare. It is completely unaffected by practical and financial terms and is accessible by an intelligent computer and Internet connection to any person on the planet. It remains easier to buy or liquidate than any other daily commodity. We are still weeks (or months) away from the end of the crisis we now face. The quantitative easing rates are likely to be even higher when we finish, and we don’t even know what we don’t yet learn. It could be better or even worse than we expect.
For many of us, even considering financial problems like these may be far from what we expect.
Yet if you go today to the Supreme Court to challenge whether or not Bitcoin is a store of value with this new evidence, on which hand will you be? For or against? For or against?
All I know that, if you argued against it, you will need a lawyer’s hell.